๐ PIMCO: Leveraged Finance Splits in Two โ High Yield Strengthens While Software-Heavy Loans Show Cracks
PIMCO's Lotfi Karoui flags a widening divide in credit markets.
โข High yield bonds are stronger than their own history โ BB-rated share hit a record 54%, versus just 30% in 2010.
โข Leveraged loans and direct lending look shakier: loans' BB share fell to 28%, down from a post-GFC peak of 45%.
โข Direct lending AUM has grown several-fold since 2016 as excess capital chasing limited deals weakened underwriting.
โข Software โ the largest sector in both loans and direct lending โ is the key stress channel, with CLO CCC buckets nearing the 7% danger threshold.
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